I can easily spend £10 a day on random things, such as a couple of coffees or a McDonalds meal. If I put that same tenner into quality UK stocks paying dividends, I could earn a nice additional income stream.
Let me illustrate how I could do that, as well as detail one pick that could help as part of a diversified portfolio.
A numbers game
On the surface of things, £10 a day may not sound like a lot of money. However, adding that up, I get an annual figure of £3,640. The magic of compounding can boost this.
Using a Stocks and Shares ISA as my investment method of choice, I’m going to invest for 25 years, and aim for an 8% rate of return.
There are two things to note. Firstly, this type of ISA is attractive as I don’t have to pay tax on capital gains and dividends. Next, 8% is the rate of return I’m hoping to achieve from the whole portfolio, which would consist of approximately five to 10 stocks.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Before I dive into the numbers, it’s worth remembering that no matter which stocks I buy, dividends are never guaranteed. Plus, there’s no guarantee I’d generate an 8% return — it could be lower, hurting the income level I’m hoping to achieve. On the other hand, I could earn more than 8%.
Investing £10 a day – or £3,640 annually – for 25 years would leave me with £278,052. I’m going to draw down 5% annually, which equates to £13,902. Translating that to a weekly figure, I’d be left with £267 a week.
Drinks giant
One stock I’d love to buy to help me achieve the above would be soft drinks giant Britvic (LSE: BVIC).
As one of the largest businesses of its kind, the firm possesses excellent brand power, a loyal customer base, and a good track record too. Some of its best known brands include J2O, Robinsons, and Tango. Plus, it also possesses an exclusive and lucrative agreement with PepsiCo to bottle and distribute their products in the UK.
The shares have dropped 6% over a 12-month period from 916p at this time last year, to current levels of 861p.
Macroeconomic volatility has hurt the shares, but I see this as a positive for now, as it offers me a better entry point to snap up some shares. They trade on an attractive price-to-earnings ratio of just 13.
Taking a look at the rate of return, a dividend yield of just under 4% is enticing to me. I’m confident this could grow, in line with the business.
A shorter-term risk I must note is that of continued volatility hurting demand, sales, and performance. This is due to Britvic products being viewed as premium branded items. A cost-of-living crisis has led to consumers looking to make their budgets stretch further, and buy non-branded, cheaper essentials ranges.
